The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published today two amended Implementing Technical Standards (ITS) on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk. The amendments reflect the recognition of five new credit rating agencies (CRAs) and the deregistration of one CRA. The ITS are part of the EU Single Rulebook for banking and insurance aimed at creating a safe and sound regulatory framework consistently applicable across the European Union (EU).

The ITS, developed by the ESAs and adopted by the European Commission on 7 and 11 October 2016, aim at ensuring that only credit ratings issued by External Credit Assessment Institutions (ECAIs) – those credit rating agencies (CRAs) registered under Regulation (EC) No 1060/2009 or central banks issuing credit ratings exempt from the application of the same regulation - can be used for calculating capital requirements of financial institutions and insurance undertakings. To this aim, the three ESAs have specified an approach that establishes the correspondence -or mapping- between credit assessments and the credit quality steps defined in the EU prudential regulation for banking (Capital Requirements Regulation – CRR) and EU insurance regulation (Solvency II Directive).

Since the adoption of these ITS, ESMA has withdrawn the registration of one CRA and five additional CRAs have been recognised. The ITS have, therefore, been amended to reflect the allocation of appropriate risk weights to the newly established ECAIs and to remove the reference to the de-registered ECAI. The mappings for the other 25 ECAIs covered in the ITS remain unchanged.

The ESAs also published individual mapping reports illustrating how the methodology was applied to produce the five additional mappings under the Capital Requirements Regulation (CRR) mandate.

Legal basis

The proposed revised draft ITSs have been developed according to Article 136 (1) and (3) of Regulation 575/2013 (Capital Requirements Regulation) and of Article 109 (a) of Directive 2009/138/EC (Solvency II Directive), which state that revised draft ITS shall be submitted by the ESAs, where necessary.

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) launched today a public consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk to reflect the recognition of five new credit rating agencies (CRAs) and the deregistration of one CRA. The Implementing Regulations are part of the EU Single Rulebook for banking and insurance aimed at creating a safe and sound regulatory framework consistently applicable across the European Union (EU). The consultation runs until 18/09/2017.

The Implementing Regulations developed by the ESAs and adopted by the European Commission on 7 and 11 October 2016, aim at ensuring that only credit ratings issued by External Credit Assessment Institutions (ECAIs) – those credit rating agencies (CRAs) registered under Regulation (EC) No 1060/2009 or central banks issuing credit ratings exempt from the application of the same regulation - can be used for calculating capital requirements of financial institutions and insurance undertakings. To this aim, the three ESAs have specified an approach that establishes the correspondence -or ‘mapping'- between credit ratings and the credit quality steps defined in the EU prudential regulation for banking (Capital Requirements Regulation – CRR) and EU insurance regulation (Solvency II Directive).

Since the adoption of these Implementing Regulations, ESMA has withdrawn the registration of one CRA and five additional CRAs have been recognised. The Implementing Regulations will, therefore, need to be amended to reflect the allocation of appropriate risk weights to the newly established ECAIs and to remove the reference to the de-registered ECAI. The mappings for the other 25 ECAIs covered in the Implementing Regulations remain unchanged.

The ESAs also published individual draft mapping reports illustrating how the methodology was applied to produce the five additional mappings under the Capital Requirements Regulation (CRR) mandate.

Consultation process

Comments to the Consultation Paper on the mapping under Article 136 of the CRR can be sent by clicking on the "send your comments" button on the EBA's consultation page. Comments to the Consultation Paper on the mapping under Article 109 (a) of the Solvency II Directive can be provided through the template for comments that can be downloaded from Joint Committee website. Please note that the deadline for the submission of comments is 18/09/2017.

All contributions received will be published following the close of the consultation, unless requested otherwise.

A public hearing on the draft ITS will be held at the EBA premises in London on 4 September 2017 at 14:00 UK time.

Legal basis

The proposed revised draft ITSs have been developed according to Article 136 (1) and (3) of Regulation 575/2013 (Capital Requirements Regulation) and of Article 109 (a) of Directive 2009/138/EC (Solvency II Directive), which state that revised draft ITS shall be submitted by the ESAs, where necessary.

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published today two draft Implementing Technical Standards (ITS) on credit assessments by External Credit Assessment Institutions (ECAIs). By determining an objective approach for attributing risk weights to the assessments of ECAIs, as well as a prudential approach for those cases lacking factual evidence, these standards will ensure sound credit assessments contributing to financial stability in the EU.

The standards issued today by the ESAs are part of the EU Single Rulebook for banking and insurance aimed at creating a safe and sound regulatory framework consistently applicable across the European Union (EU). The work of the ESAs is intended to ensure that only credit ratings issued by External Credit Assessment Institutions (ECAIs) – those credit rating agencies registered under Regulation (EC) No 1060/2009 or central banks issuing credit ratings exempt from the application of the same regulation - can be used for calculating capital requirements of financial institutions and insurance undertakings.

In order to determine the allocation of appropriate risk weights to the credit ratings issued by ECAIs, the three ESAs have specified an approach that establishes the correspondence -or ‘mapping'- between credit ratings and the credit quality steps defined in the EU prudential regulation for banking (Capital Requirements Regulation – CRR) and insurance (Solvency II Directive). The factors and benchmarks that need to be taken into consideration to this end are specified in these ITS.

The ESAs also addressed situations where the degree of risk underlying a credit assessment cannot be ascertained due to the lack of factual evidence. Credit rating agencies that can only provide limited data sets will be required to apply a transitional period of three years, during which quantitative information can be collected in view of a second mapping which is to take place at the end of the three years.

By striking a sound balance between prudential and market concerns, these ITS will ensure the prudential use of credit ratings across the EU for the calculation of capital requirements, hence driving confidence in the EU financial sector. The standards have been submitted to the European Commission for endorsement.

Background

The proposed draft ITSs have been developed on the basis of Article 136 (1) and (3) of Regulation 575/2013 (Capital Requirements Regulation) and of Article 109 (a) of Directive 2009/138/EC (Solvency II Directive).

The Joint Committee of the ESAs consulted the public on their work on ECAIs between 2014 and 2015. Responses received were made publicly available, unless submitters requested otherwise.